Creating Competitive Advantages

1
Chapter 1

• Creating Competitive Advantages

2
Learning Objectives

• 1. Define strategic management and its four key
  attributes.
• 2. Understand the strategic management process
• 3. Understand the corporate governance process
• 4. Debate the importance of social responsibility
• 5. Be aware of the shift in strategic MNGT
  thinking.
• 6. Understand the hierarchy of goals

3
Two Leadership Perspectives

• Romantic Perspective - implicit assumption is
  that the leader is the key force in determining
  an organizations success or failure.
• External Control Perspective External factors
  in the environment are primarily responsible for
  the firms success or failure.
• Leaders can make a difference, but they must
• Be constantly aware of the opportunities and
  threats that they face in the external
  environment
• Have a thorough understanding of their firms
  resources and capabilities.

4
Strategic Management

• Analysis
• Strategic goals (vision, mission, strategic
  objectives)
• Internal and external environment of the firm
• Strategic decisions
• What industries should we compete in?
• How should we compete in those industries?
• Actions
• Allocate necessary resources
• Design the organization to bring intended
  strategies to reality

5
Strategic Management

• Strategic management is the study of why some
  firms outperform others
• How to compete in order to create competitive
  advantages in the marketplace
• How to create competitive advantages in the
  market place which are
• Unique and valuable
• Difficult for competitors to copy or substitute

6
4 Key Attributes

• 1. Focus on overall organizational goals and
  objectives
• 2. Includes multiple stakeholders in decision
  making
• 3. Requires incorporating both short-term and
  long-term perspectives
• 4. Involves trade-offs between effectiveness and
  efficiency.

7
American Managers

• Only 59 percent of financial executives say they
  would pursue a positive net present value project
  if it meant missing the quarters consensus
  earnings per-share estimate.
• 78 percent say they would sacrifice valueoften a
  great deal of valueto smooth earnings.
• Managers are more likely to cut RD to reverse an
  earning slide if a significant amount of the
  companys equity is owned by institutions with
  high portfolio turnover.

8
Strategic Management Process
9
Strategic Analysis

• Analyzing Organizational Goals Objectives
• Hierarchy of goals
• Analyzing the external environment
• Scan the environment
• Analyze competitors
• The general environment
• The industry Environment

10
Strategic Analysis Cont.

• Assessing the internal environment
• Strengths weaknesses
• The value chain
• Resource based view
• Assessing intellectual assets
• Intellectual assets are drivers of
• Competitive advantage
• Wealth creation
• Networks and relationships among
• Employees, customers, Suppliers, Alliance
  partners

11
Strategic Formulation

• Business level strategy
• Cost leadership
• Differentiation
• Focusing on narrow or industry-wide market
  segments
• Sustainability
• Industry life cycle
• Corporate Level Strategy
• What businesses should we be in?
• How can we create synergies among the businesses?
  
• Diversification (Related vs. Unrelated

12
Strategic Implementation

• Strategic controls
• Informational Control
• Behavioral Control
• Effective Corporate Governance
• Organizational designs - a firm's structure must
  match its strategy
• Leadership
• Ethical organization
• Learning Organization

13
Corporate Governance

• Corporate Governance - Relationship among various
  participants in determining the direction and
  performance of corporations.
• Board of Directors - Elected representatives of
  the owners
• Ensure interests and motives of management are
  aligned with those of the owners
• Effective and engaged Board of Directors
• Shareholder activism
• Proper managerial rewards and incentives

14
Attitude of Americans

• 90 percent of Americans felt that people leading
  corporations could not be trusted to look after
  the interests of their employees,
• Only 18 percent thought that corporations looked
  after their shareholders.
• 43 believed that senior executives were in it
  only for themselves.

15
Stakeholder Management

• Two views of stakeholder management
• Zero sum
• Stakeholders compete for attention and resources
  of the organization
• Gain of one is a loss to the other
• Symbiosis
• Stakeholders are dependent upon each other
• Mutual benefits

16
Corporate Social Responsibility

• Social Responsibility - The expectation that
  businesses or individuals will strive to improve
  the overall welfare of society
• Managers must take active steps to make society
  better
• Socially responsible behavior changes over time
• Social Innovation
• Environmental sustainability
• Triple bottom line

17
Stats on CSR

• 84 percent of Americans say they would be likely
  to switch brands to one associated with a good
  cause, if price and quality are similar.
• 79 percent of Americans take corporate
  citizenship into account when deciding whether to
  buy a particular companys product
• 37 percent consider corporate citizenship an
  important factor when making purchasing
  decisions.

18
Shift in Management Thinking

• Integrative view of the organization
• Assess how functional areas and activities fit
  together to achieve goals and objectives
• All managers and employees must take an
  integrative, strategic perspective of issues
  facing the organization
• Local line leaders
• Executive leaders
• Internal networkers
• Intellectual Capital is the key to competitive
  advantage in the modern economy.

19
Hierarchy of Goals

• Vision - A goal that is massively inspiring,
  overarching, and long term.
• To be the worlds largest quick service
  restaurant (McDonalds)
• Mission - Company purpose, its basis of
  competition, and competitive advantage.
• To produce superior financial returns for our
  shareholders as we serve our customers with the
  highest quality transportation, logistics, and
  e-commerce. (Federal Express)

20
Hierarchy Cont.

• Study 89 of employees say their companies have
  a mission statementbut
• Only 23 of workers believe their companys
  mission statement has become a way of doing
  business!
• Do you know ISUs mission?

21
Hierarchy Cont.

• Problems with corporate visions
• The Walk Doesnt Match the Talk
• Irrelevance
• Not the Holy Grail
• Too Much Focus Leads to Missed Opportunities
• Problem with Missions
• Too Much focus on Shareholder maximization or
  profits

22
Hierarchy Cont.

• Strategic objectives - Operationalize the mission
  statement.
• More specific
• Cover a more well-defined time frame.
• Provide guidance on how the organization can
  fulfill higher goals in the goal hierarchy.
• Strategic Goals must be
• Specific
• Measurable
• Attainable
• Realistic
• Timely

23
Objectives

• 1. Define strategic management and its four key
  attributes.
• 2. Understand the strategic management process
• 3. Understand the corporate governance process
• 4. Debate the importance of social responsibility
• 5. Be aware of the shift in strategic MNGT
  thinking.
• 6. Understand the hierarchy of goals